Trend lines are a part of technical analysis. Unfortunately, they are not magic, and they only serve the purpose of drawing our attention to them, so we can wait for a reaction. If you try and front-run them, expecting a bounce or a break, you will invariably come undone quickly. The monthly chart shows a compression in price, and we know 1.1300 is a critical level, so as the pressure builds up, the breakout when it comes, could be volatile.
Forex Analysis - EURUSD
Monthly trend lines for EURUSD offer levels of support and resistance, though price action in the last couple of months is pushing for a break lower. The euro has made lower lows and higher highs over the past six years. In March, the trendline connecting the 2017 and 2020 lows provided support at 1.08. We're now waiting to see if the post-Fed reaction, end-of-month rebalancing and an escalation in Ukraine puts price action beyond this level or will it continue to hold? Based on the trend line in 2Q of 2022, between 1.0820 and 1.0843 is a key battleground.
For a trend to continue, the price must hold a certain level or line on the chart. If the line is broken, the signal is to watch for trend changes. Despite being in a downtrend for about a year, the euro recently tested and held its trend-line support in the 1.08s. Whenever the euro closes above this line, it is technically possible for the euro to bottom and a break above a monthly swing high would confirm this. Breaking down extends the decline through the 1.03s and possibly down to parity.
The ActivTrader sentiment indicator shows that traders on the platform are evenly balanced with a slight edge in bullishness, though the bull sentiment is dropping fast as the war in Ukraine goes into another week.
On the daily chart, we had seen the RSI bounce from being oversold and the MACD is currently showing positive momentum to the upside is still possible. 1.11500 is a key resistance level and a close above there in my opinion opens the possibility of a test of February’s highs and the monthly EMA’s. 1.1300 is clearly the line of interest for 2022 and if Russia hadn't invaded, we may still be trading there today. It would make sense that we revisit at least one more time on an easing of hostilities.
The policy divergence between the ECB and Fed should stop the advance higher in the EURUSD, especially if the central bankers from the Fed talk a more hawkish policy with possible multi 50bps hikes this year.